Ally, whose defunct GMAC Mortgage unit was one of the biggest lenders of subprime mortgages in the run-up to the 2008 housing bust, will inch back into direct home loan originations next year, the bank’s Chief Executive Officer Jeffrey Brown said this week at a Goldman Sachs Group Inc. financial conference in New York.

“Don’t think of this as Ally going down the road of the old GMAC,” Brown said, referring to the home lending unit that brought Ally to the brink of collapse.

The bank has no plans to securitize its originations, and it won’t keep any servicing rights or build out a servicing operation, Ally spokeswoman Gina Proia said in an e-mail.

Ally isn’t expected to start offering risky products the way GMAC did, according to Jeff Davis at Mercer Capital. “But they’ve got to do something, because they won’t make a decent return if the business is limited to making car loans,” he said.

GMAC’s ResCap was once of the nation’s top subprime lenders, but eventually GMAC and ResCap began dragging down Ally’s business, with ResCap eventually falling into bankruptcy.

In 2012, Ally announced that it was going to shutter its mortgage business after the conclusion of ResCap’s bankruptcy proceedings.

In May 2012, Ally executives said they planned to sell off $1.3 billion in mortgage servicing rights owned by Ally Bank as part of the wind down. "You can live in your car if you don't pay your mortgage," then-Ally CEO Michael Carpenter said in 2012. "I don't mean to be cute, but the fact is people make their car payment before they pay their mortgage."

In 2013, Ally agreed to contribute $1.95 billion in cash to the ResCap estate, as well as the first $150 million of the insurance recoveries expected in connection with additional mortgage-related losses.

As of June 30, 2013, Ally ceased new mortgage loan originations, the company said at the time. The company also sold off the last of its mortgage servicing rights in the second quarter of 2013.

"Ally closed the chapter on its legacy mortgage issues, sold substantially all of its international operations, reduced its higher cost unsecured debt and achieved financial holding company status,” Carpenter said in Feb. 2014. “Today, Ally has a pristine balance sheet and is focused on its strengths with its leading domestic automotive services and direct banking franchises.”

Just in the Nick of Time

Just in the nick of time, with housing prices recovered and the global economy slowing, and therefore risk is the highest in years, Ally hopped back in the saddle.

Don't worry, they won't securitize the loans, and they won't service them either. Instead they will hold all of the default risk themselves just as home prices have slowed if not stalled.

That people walk away from mortgages but not car loans is no longer a concern. From here on out, home prices will only go up.

By the way, people will walk away from car loans if they lose their job.

Need to Do Something

“But they’ve got to do something, because they won’t make a decent return if the business is limited to making car loans,” said Jeff Davis at Mercer Capital.

Ah yes, let's take on more risk now, just as home prices have recovered, the Fed is hiking, numerous warning signals on the global economy abound, and losses on subprime autos are poised to mount.

Fate

Ally's timing for the next downturn could not possibly be better.

I pinged the above articles to Pater Tenebrarum at the Acting Man blog
under the email title "Just in the Nick of Time" and he pinged me back
with "The fates have a strange sense of humor".

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